Mind the Drop-Off
Talking Points Yglesias, I see Robert Ball, everybody's favorite former Social Security Commissioner, has a new issue brief
on the subject. So I pry it open, and lo, the man's endorsing most of the Brad Plumer plan
for Social Security. He's too kind! And what are the odds? Actually, pretty good, since I lifted most of "my" ideas from an earlier piece by Ball. Okay, enough navel-gazing. Just to add one thing, though, bear in mind that after
we win the current debate about whether to keep Social Security or not, and move on to the debate about how to actually improve Social Security, we'll want to fix two oft-neglected things: the broken disability guidelines
, and the too-meager benefits for both minimum wage workers and elderly survivors.
But now's not the time for that
discussion: No, the biggest problem with Social Security today is that the President of the United States wants to eliminate the program. So with that in mind, Ball makes a very important point, re: Bush's price-indexing:
The only true measure of the effectiveness of a retirement system is the extent to which it replaces what the worker has been earning in the years shortly before retirement.
Yes, well done! Look, in the debate over whether future benefits should be indexed to wages or prices, there are a lot of very red herrings strewn about. The pro-wage-index side says, hey, benefits ought to keep up with standards of living so seniors of the future can still buy innovations of the future, like DVD players with buttons on them
or whatever. The pro-price indexing side, meanwhile, responds with arguments about how the basket of goods to measure CPI changes over time so no, seniors of the future will be just fine if they have benefits that are equal in real terms to what they are today. And so forth.
Bah! As Ball says, the main thing that matters here is the drop-off
from pre-retirement to post-retirement. As wages rise, you want post-retirement income to rise with it, so that the replacement rate
is constant. Otherwise, if you're living off X dollars a year at the age of 67 and then have to live off 0.2X dollars the next, that's a big jump down, and a drastic and difficult change in lifestyle, regardless of what you can and can't buy with 0.2X. So Social Security should be the sturdiest leg of a three-legged stool (the other legs being private savings and possibly a 401k or other company pension) that helps minimize that drop once you, uh, finish dancing on the bar-counter. With price-indexing, the bar-counter would keep getting higher and higher, but the stool wouldn't be guaranteed to rise along with it, so you risk having the drop-off on retirement get steeper and more difficult over time. Whatever, this metaphor sucks, but you know what I mean...Oh, P.S.
Speaking of three-legged stools, what the devil? Not only is Matt maintaining Marshall-like replacements rates at TPM
, but I click over to Tapped
and the eponomyous site
and he's still barn-blazing at both of those sites as well. Truly insane! What I'd really
like to see is a "post-off" between him and our ominpresent friend praktike
to find out who can produce the most original content per hour.